It’s a Market of Stocks, Not a Stock Market

Boy, this market has sure run up lately, I better wait for a pullback to buy. Gee, this market is in free fall, seems like a good time to get in, but I think it’s going much lower before it goes higher, so I’ll wait. In my 20+ years of watching markets and counseling clients, I get these questions all too often. Psychologically, either of these options seem like the correct course of action, but realistically it usually translates into missed opportunities.

Before I jump into why, let me first ask a couple questions. Have you ever seen some of your stocks go up on bad news? Down on good news? Perhaps you have some stocks that are up when the market is down big, or down when the market is up big? Why? How could this be? The answer lies in how most people tend to look at their investments vs. how they should look at their investments.

The market is a place where all stocks of every size and every industry trade on a daily basis. It is merely a place where buyers and sellers meet to transact. It is up when there are more buyers than sellers and down when there are more sellers than buyers. It is a place that provides investors with the comfort of daily liquidity with respect to all their holdings. Notice that I used the word comfort because that is the essence of liquidity. Allowing a person to move large sums of money with just a few keystrokes or mouse clicks is quite an amazing thing. Next to the value of your home, the amount you have invested in the market probably represents the 2^nd largest accumulation of money to your name. Yet your home has nothing even remotely close to daily liquidity. So, for this blessing of daily liquidity, we as investors must operate under the assumption that prices will move around each and every trading day for a myriad of reasons; good, bad, or indifferent.

“Yeah, but I sold out back in February 2020 before things got really crazy and the market cratered.” For the number of folks who sold back then, I would venture to guess there are multiples of that number that did not venture back into the market on March 23^rd (the bottom) or April, May, June……perhaps not even yet. So, for achieving hero status by selling out before a big downturn, the longer one waits to reinvest on the market rebound, that hero status will be whittled down to something more along the lines of mortal status.

So, how can the animal spirits of investing be tamed? We feel that getting to know the stocks in your portfolio really well is the best way to operate as a money manager. Afterall, investing in a stock is actually an investment into a company that has to grow sales, manage costs, and produce a profit. If you think about investing this way, it strips out the emotions associated with market movement. How do we do this you might ask? It is accomplished by rigorous fundamental research performed by people who have been educated and trained to perform such research. You then get to know the company’s management, and if they prove to be good operators, you probably have the makings of a well-researched investment. If you own quality companies at reasonable valuations, you can then watch them evolve quarter by quarter and year by year as your invested money grows over time. This is what we believe and this is how we invest.